Homer gas line loan OK'd

Medical office building also on assembly agenda

The Kenai Peninsula Borough Assembly on Tuesday approved an ordinance amending a portion of borough code dealing with investments to allow two potential loans to the cities of Homer and Kachemak City to help create a natural gas grid.

The approval, however, received two last minute changes — first to increase the amount that can be loaned to Kachemak City to $600,000 from the previous $300,000 and to eliminate ordinance language that set in stone the loan’s interest rate.

The assembly approved the ordinance 6-1 with assembly member Kelly Wolf casting the dissenting vote and assembly member Charlie Pierce abstaining due to a perceived conflict of interest. Assembly member Hal Smalley was absent.

The ordinance does not set in place any specific agreement, but rather gives the borough the power to negotiate a deal and the assembly the authority to approve it. The total amount of the loan could be up to $13.3 million — $12.7 million to Homer and $600,000 to Kachemak City.

Kenai Peninsula Borough Mayor Mike Navarre said the change in interest rate language — which previously read that the borough would charge 4.5 percent — was removed after assembly discussion, as it was not required. Navarre said it would give Homer, Kachemak City and the borough flexibility during any negotiations and noted any future loan and its specific terms would need to be approved by the assembly.

“We felt that having an interest rate listed in there was not necessary because we were going to have to come back to the assembly, in the event this thing moves forward, with the terms and conditions at that time,” said Borough Finance Director Craig Chapman on Wednesday.

Bill Smith, who represents Homer on the assembly, said Tuesday construction costs were deemed to be higher than originally estimated during discussions with Kachemak officials and increasing the maximum amount of the loan would give the city flexibility.

Homer officials first approached the borough about the loan, which could save the municipality money depending on other commercial interest rates currently being solicited by Homer finance officials, Chapman said.

The potential loan comes on the heels of last year’s state capital appropriations that will bring a gas line from Anchor Point south. The loans would fund construction of trunk lines from the main gas line to the edge of properties. Homer property owners would pay the principle back through their property taxes via a special assessment district, but those Homer residents who want to connect their home to the trunk line would pay for that themselves.

The assembly also approved Ordinance 2012-19-42, which authorized Central Peninsula Hospital to pull $3.3 million from its coffers to fund the engineering and design of a $37.5 million, 72,760-square-foot medical office building that would open in the fall of 2015.

Pierce gave a committee report on the ordinance and said the assembly has heard “concerns related to competition,” but didn’t elaborate.

“Certainly there would be some competition, but it is hard to predict who that competition would be,” he said. “Ultimately the administration reported that the effects and some of the strategic planning that has taken place today at our hospitals are a plan going forward that helps sustain the services that are currently being provided (and) provides long term predictability of providing those services.”

CPH Chief Executive Officer Rick Davis said the hospital has four choices as to its future — one, to sell the hospital; two, to consider a joint venture (both of which have been protested by the community and aren’t on the table, he said); and three, to live on its reserves, “hunker down” and watch reimbursement rates dwindle possibly meaning fewer services and more burden on tax payers.

Or, Davis said, the hospital can remain a standalone and grow.

The medical office building fits into that last option, he said. It would allow space for a number of additional services or expansions to existing services, space for a full cancer center and room for the blooming spine surgery program to fill, he said.

“We believe this is the best option for our community and our hospital given existing circumstances and in the face of declining reimbursement,” he said. “Constructing a medical office building now allows us to bring in additional services, it better positions us for partnering opportunities with our physicians and it provides for additional services to make up for the declining reimbursements we know are coming.”

Davis said it was a phase-designed project and that if at any time the hospital would run into something that was a “complete game-changer” officials could stop the process and “save the remaining funds.” Portions of the facility — such as adding a second MRI machine or expanding infusion services — would require a state certificate of need approval, but the hospital will submit the whole project to the CON office, Davis said.

The assembly also approved Ordinance 2013-01, which changed the time of assembly meetings from 7 p.m. to 6 p.m. starting at its next meeting on Feb. 19.

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